This week the focus is likely to be on central banks once more with the Jackson Hole symposium on Friday, and recent comments from Bank of Japan Governor Kuroda suggesting that he could push interest rates in Japan even more negative, while Fed vice Chair Stanley Fischer tried to buoy up expectations of some Fed action this year by saying that the US central bank was within striking distance of its inflation target.
Against this backdrop it was perhaps inevitable that we’d see a little bit of profit taking last week, in the wake of the latest Fed minutes and the insistence of other Fed officials that a September rate rise was still on the table.
While no one seriously expects the Federal Reserve to act on rates next month, some Fed officials seem extremely keen to try and keep the option on the table, with both the New York and California Fed President’s Dudley and Williams the most vocal, along with Fischer’s comments at the weekend.
This is likely to make this week’s Jackson Hole annual central bank symposium a key focus of attention for markets as investors look to get some clarity on the Federal Reserve’s long term outlook for the US and global economy, as well as indications about any new direction Fed officials might be thinking in terms of taking monetary policy in this new era of very low, and in some cases global negative interest rates.
Fed Chair Janet Yellen’s predecessor, Ben Bernanke was quite fond of signalling some significant policy moves in the wake of the financial crisis at this very event, so much so that it has become a leading indicator for Fed and central bank policy in the last few years.
In this context attention will be on Ms Yellen’s speech on Friday, however it doesn’t seem likely that we’ll get any significant clues despite the markets desire to be hand held by the Fed.
On the data front this week there aren’t expected to be too much in the way of surprises with the latest revisions to Q2 GDP from the US, Germany and the UK.
All are expected to be come in more or less unchanged from their first readings, with particular focus likely to be on business investment which in the case of the UK is expected to show a further decline in the lead up to the June vote, while in the US there is similar concern about why businesses remain reluctant to invest in the future.
In terms of more up to date data we have the latest flash manufacturing and services PMI’s from France and Germany for August which are expected to paint a too different a picture from the final July numbers, namely a stagnant French economy and a slight weakening of activity in Germany.
EURUSD – having moved beyond 1.1250 the next resistance sits at the June highs above the 1.1400 area. It seems likely that we will continue to remain range bound with only a move below the 1.1200 area arguing for a move back towards 1.1120.
GBPUSD – having seen a rebound to 1.3186 last week the pound needs to hold above 1.2970 to suggest we’ve seen a short term base at 1.2865. A move through 1.3200 has the potential to retarget the 1.3500 area.
EURGBP – having failed to push above the 0.8720 area last week we could drift back towards 0.8610 area. A break below 0.8600 could well signal a retest of the 0.8490 area. There is fairly solid between 0.8770 and the 2013 highs at 0.8815.
USDJPY – the US dollar continues to find it difficult to rally with the recent lows at 98.95 the main focus. The risk remains skewed for a move through these lows at 98.90, and potentially lower towards 95.00, and levels last seen in June 2013.